Since March, the price of silicon-manganese has been steadily rising. However, during a recent field visit to the Ningxia production area conducted by a research team from the Zhengzhou Commodity Exchange’s silicon-manganese enterprises, it was found that many silicon-manganese companies are still operating at a loss. Due to the sharp increase in the price of raw material manganese ore and the fact that some steel mills have reduced their purchasing volumes and are pressing for lower prices, most silicon-manganese companies have adopted a strategy of cutting production to maintain prices. As a result, the overall operating rate of local silicon-manganese enterprises remains relatively low.

　　According to a report by Futures Daily on March 23, Li Jiajia, a ferroalloy researcher at Shanghai Zhongji, said that from the end of 2016 to the beginning of 2017, the operating rates of silicon-manganese enterprises remained low. "In the earlier period, steel mills reduced their tender volumes, and as the year-end approached, companies were eager to recover funds and thus sold their products at lower prices, causing the silicon-manganese market to weaken rapidly and prompting silicon-manganese enterprises to cut their operating rates. Although the market is now showing signs of recovery, it still fails to cover the production costs associated with the higher-priced ores from the earlier period, and the furnaces that had been shut down previously remain idle."

　　Ningxia Shengyan Industrial Group Co., Ltd. (hereinafter referred to as Ningxia Shengyan) is currently China’s largest production and processing base for ferromanganese alloys. According to Guan Xiangkong, a relevant official from the company’s sales department, Ningxia Shengyan has a total of 12 submerged arc furnaces, 11 of which are used for producing ferromanganese alloys and one for producing silicon-iron. The designed annual production capacity for ferromanganese alloys is 550,000 tons, while the actual production capacity stands at 520,000 tons. Currently, the plant’s operating rate is at a historically low level. Guan Xiangkong said: “At present, seven of the submerged arc furnaces used for producing ferromanganese alloys are in operation, while the remaining three are undergoing maintenance, and one is running at a 50% load. Under normal circumstances, all 11 furnaces would be operating at full capacity—situations like the current maintenance period are relatively rare.”

　　It is understood that Ningxia Shengyan Equipment Maintenance began after the market reversal this year. “Last year, when the market was on a one-sided upward trend, several of our furnaces were operating while already showing signs of trouble. After the Spring Festival, the ferroalloy industry experienced a reversal, so we decided to take advantage of the situation and promptly carry out maintenance on the furnaces. As for when we’ll resume production, that’s still uncertain—mainly depending on how the market develops in the coming period,” said Guan Xiangkong.

　　The other two companies visited by the research team also reported low operating rates. Ningxia Jixin Alloy Co., Ltd. (hereinafter referred to as Ningxia Jixin) has a total of four furnaces for producing silicon-manganese alloys, three of which are 30,000 KVA and one is 16,500 KVA, with an annual production capacity reaching 200,000 tons. According to a relevant official from the company, currently three large furnaces are in operation, yielding an average daily output of 500 tons. “Even during the worst market conditions in 2014, we never stopped production. The current low operating rate is due to the fact that the company is still suffering losses, and market prices are changing too rapidly,” said the official.

　　It is understood that the main production costs of silicon-manganese alloys include the procurement of manganese ore and coke (1891, 19.00, 1.01%), as well as electricity charges. Among these, manganese ore accounts for the largest share. The three enterprises visited by the research team on the 21st all rely primarily on imported manganese ore. According to a relevant official from Ningxia Jixin, the company mainly uses South African and Australian manganese ores. “Due to the reluctance of foreign suppliers to sell manganese ore in February and March, the company is currently depleting its previously purchased high-priced ore. The persistently high costs have made the company strongly determined to maintain its pricing.”

　　It is understood that 70% of Ningxia Jixin’s product sales are handled by traders, while direct sales from steel mills account for the remaining 30%. The official mentioned above said: “The pricing model for traders is determined based on market conditions. When market conditions are favorable, the pricing cycle is shorter; when conditions are unfavorable, pricing may be adjusted on a monthly basis. Over the past couple of days, the ex-factory processing price offered to traders has been between 7,000 and 7,200 yuan per ton. However, traders are not accepting this price—but only at this level can they break even with their costs.”

　　The capacity utilization rate of Ningxia Jiyuan Metallurgical Group Co., Ltd., visited by the research team, has dropped to 50%. The company has a total of six furnaces, of which only three are currently in operation. Mo Junning, the company’s deputy general manager, frankly stated that product sales stalled in February, and coupled with power plant maintenance, this led to a decline in the operating rate. “Looking at our cost structure, manganese ore accounts for 50%, while electricity costs account for 25%. Currently, the costs faced by operating enterprises are very high. Based on the current price of manganese ore, the product price would need to reach between 7,800 and 8,000 yuan per ton,” said Mo Junning.